Understanding Enterprise Structures PDF

Oracle
Applications Cloud
Understanding Enterprise
Structures
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Oracle® Applications Cloud Understanding Enterprise Structures
Part Number E61361-02
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Oracle Applications Cloud
Understanding Enterprise Structures
Contents
Preface i
1 Enterprise Structures 1
Enterprise Structures: Overview ................................................................................................................................ 1
Enterprise Structures Business Process Model: Explained ........................................................................................ 3
Using Single or Multiple Classifications for an Organization: Points to Consider ......................................................... 6
Configuration Workbench: Explained ......................................................................................................................... 6
Global Enterprise Configuration: Points to Consider .................................................................................................. 7
Modeling Your Enterprise Structure in Oracle Fusion: Example ................................................................................. 8
2 Enterprises 11
Enterprise: Explained ............................................................................................................................................... 11
3 Jurisdictions and Legal Authorities 13

Jurisdictions and Legal Authorities: Explained ......................................................................................................... 13
Jurisdictions: Explained ........................................................................................................................................... 13
Legal Authorities: Explained .................................................................................................................................... 14
Legislative Data Groups: Explained ......................................................................................................................... 14
4 Legal Entities 15
Legal Entities: Explained ......................................................................................................................................... 15
Legal Entity in Oracle Fusion: Points to Consider .................................................................................................... 16
What's a payroll statutory unit? .............................................................................................................................. 19
What's a legal employer? ....................................................................................................................................... 19
What's a tax reporting unit? ................................................................................................................................... 19
Planning Legal Reporting Units: Points to Consider ................................................................................................ 19
Designing an Enterprise Configuration: Example ..................................................................................................... 20
5 Management Reporting Structures 23

Division: Explained .................................................................................................................................................. 23
Business Units: Explained ....................................................................................................................................... 23
Business Functions: Explained ................................................................................................................................ 24
Business Functions and Departments: How They Fit Together ................................................................................ 27
Shared Service Centers: Explained ......................................................................................................................... 27
Project Units: Explained .......................................................................................................................................... 28
Business Units and Projects: Explained .................................................................................................................. 29
What's the difference between a business unit and a project unit? ......................................................................... 30
What's the difference between business units in Oracle PeopleSoft and Oracle Fusion Applications? ...................... 30
What's the difference between business units in Oracle E-Business Suite and Oracle Fusion Applications? .............. 31
Modeling Your Business Units in Your Enterprise Structure in Oracle Fusion: Example ............................................ 31
6 Financial Reporting Structures 33

Representing Your Enterprise Structure in Your Financial Reporting Structure: Overview ......................................... 33
Chart of Accounts: Explained ................................................................................................................................. 33
Thick Versus Thin General Ledger: Critical Choices ................................................................................................ 33
Chart of Accounts: How Its Components Fit Together ............................................................................................ 36
Financial Enterprise Structure: How It Fits Together ................................................................................................ 38
Modeling Your Financial Reporting Structure in Oracle Fusion: Example .................................................................. 41
7 Cost Centers and Departments 45

Cost Centers and Departments: Explained ............................................................................................................. 45
Department Classifications: Points to Consider ....................................................................................................... 46
What's a project and task owning organization? ..................................................................................................... 47
What's a project expenditure organization? ............................................................................................................ 47
8 Facilities 49
Item Master Organization: Explained ....................................................................................................................... 49
Item Organization: Explained ................................................................................................................................... 50
Inventory Organization: Critical Choices .................................................................................................................. 50
Cost Organization: Explained .................................................................................................................................. 52
9 Reference Data 53
Reference Data Sets and Sharing Methods: Explained ........................................................................................... 53
What reference data objects can be shared across business units? ....................................................................... 54
What reference data objects can be shared across asset books? .......................................................................... 56
What reference data objects can be shared across cost organizations? ................................................................. 57
What reference data objects can be shared across project units? .......................................................................... 58
Items and Supplier Site Reference Data Sharing: Explained .................................................................................... 58
10 Shared Service Centers 61

Shared Service Center: Points to Consider ............................................................................................................. 61
Service Provider Model: Explained .......................................................................................................................... 62
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Oracle Applications Cloud Chapter 1
Understanding Enterprise Structures Enterprise Structures
1 Enterprise Structures
Enterprise Structures: Overview

Oracle Fusion Applications have been designed to ensure your enterprise can be modeled to meet legal and management
objectives. The decisions about your implementation of Oracle Fusion Applications are affected by your:
• Industry
• Business unit requirements for autonomy
• Business and accounting policies
• Business functions performed by business units and optionally, centralized in shared service centers
• Locations of facilities
Every enterprise has three fundamental structures, legal, managerial, and functional, that describe its operations and provide
a basis for reporting.
In Oracle Fusion, these structures are implemented using the chart of accounts and organization hierarchies. Although many
alternative hierarchies can be implemented and used for reporting, you are likely to have one primary structure that organizes
your business into divisions, business units, and departments aligned by your strategic objectives.
Legal Structure
The figure above shows a typical group of legal entities, operating various business and functional organizations. Your ability
to buy and sell, own, and employ comes from your charter in the legal system. A corporation is:
• A distinct legal entity from its owners and managers.

• Owned by its shareholders, who may be individuals or other corporations.
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There are many other kinds of legal entities, such as sole proprietorships, partnerships, and government agencies.
A legally recognized entity can own and trade assets and employ people in the jurisdiction in which it is registered. When
granted these privileges, legal entities are also assigned responsibilities to:
• Account for themselves to the public through statutory and external reporting.
• Comply with legislation and regulations.
• Pay income and transaction taxes.
• Process value added tax (VAT) collection on behalf of the taxing authority.
Many large enterprises isolate risk and optimize taxes by incorporating subsidiaries. They create legal entities to facilitate legal
compliance, segregate operations, optimize taxes, complete contractual relationships, and isolate risk. Enterprises use legal
entities to establish their enterprise's identity under the laws of each country in which their enterprise operates.
In the figure above:
• A separate card represents a series of registered companies.

• Each company, including the public holding company, InFusion America, must be registered in the countries where
they do business.
• Each company contributes to various divisions created for purposes of management reporting. These are shown as
vertical columns on each card.
For example, a group might have a separate company for each business in the United States (US), but have their United
Kingdom (UK) legal entity represent all businesses in that country.
The divisions are linked across the cards so that a business can appear on some or all of the cards. For example, the air
quality monitoring systems business might be operated by the US, UK, and France companies. The list of business divisions
is on the Business Axis.
Each company's card is also horizontally striped by functional groups, such as the sales team and the finance team. This
functional list is called the Functional Axis. The overall image suggests that information might, at a minimum, be tracked
by company, business, division, and function in a group environment. In Oracle Fusion Applications, the legal structure is
implemented using legal entities.
Management Structure
Successfully managing multiple businesses requires that you segregate them by their strategic objectives, and measure their
results. Although related to your legal structure, the business organizational hierarchies do not need to be reflected directly in
the legal structure of the enterprise. The management structure can include divisions, subdivisions, lines of business, strategic
business units, profit, and cost centers. In the figure above, the management structure is shown on the Business Axis. In
Oracle Fusion Applications, the management structure is implemented using divisions and business units as well as being
reflected in the chart of accounts.
Functional Structure
Straddling the legal and business organizations is a functional organization structured around people and their competencies.
For example, sales, manufacturing, and service teams are functional organizations. This functional structure is represented
by the Functional Axis in the figure above. You reflect the efforts and expenses of your functional organizations directly on
the income statement. Organizations must manage and report revenues, cost of sales, and functional expenses such as
research and development (R&D) and selling, general, and administrative (SG&A) expenses. In Oracle Fusion Applications,
the functional structure is implemented using departments and organizations, including sales, marketing, project, cost, and
inventory organizations.
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Enterprise Structures Business Process Model:

Explained
In Oracle Fusion Applications, the Enterprise Performance and Planning Business Process Model illustrates the major
implementation tasks that you perform to create your enterprise structures. This process includes:
• Set Up Enterprise Structures business process, which consist of implementation activities that span many product
families.
• Information Technology, a second Business Process Model which contains the Set Up Information Technology
Management business process.
• Define Reference Data Sharing, which is one of the activities in this business process and is important in the
implementation of the enterprise structures. This activity creates the mechanism to share reference data sets across
multiple ledgers, business units, and warehouses, reducing the administrative burden and decreasing the time
needed to implement.
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The following figure and chart describes the Business Process Model structures and activities.
BPM Activities Description
Define Enterprise Define the enterprise to get the name of the deploying
enterprise and the location of the headquarters.

Define Enterprise Structures Define enterprise structures to represent an organization

with one or more legal entities under common control.
Define organizations to represent each area of business
within the enterprise.

4
BPM Activities Description
Define Legal Jurisdictions and Authorities Define information for governing bodies that operate
within a jurisdiction.

Define Legal Entities Define legal entities and legal reporting units for business
activities handled by the Oracle Fusion Applications.

Define Business Units Define business units of an enterprise to perform one

or many business functions that can be rolled up in a
management hierarchy. A business unit can process
transactions on behalf of many legal entities. Normally, it
has a manager, strategic objectives, a level of autonomy,
and responsibility for its profit and loss.

Define Financial Reporting Structures Define financial reporting structures, including

organization structures, charts of accounts,
organizational hierarchies, calendars, currencies and
rates, ledgers, and document sequences which are
used in organizing the financial data of a company.

Define Chart of Accounts Define chart of accounts including hierarchies and values
to enable tracking of financial transactions and reporting
at legal entity, cost center, account, and other segment
levels.

Define Ledgers Define the primary accounting ledger and any secondary
ledgers that provide an alternative accounting
representation of the financial data.

Define Accounting Configurations Define the accounting configuration that serves as a

framework for how financial records are maintained for
an organization.

Define Facilities Define your manufacturing and storage facilities as

Inventory Organizations if Oracle Fusion tracks inventory
balances there and Item Organizations if Oracle Fusion
only tracks the items used in the facility but not the
balances.

Define Reference Data Sharing Define how reference data in the applications is
partitioned and shared.

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Note
There are product specific implementation activities that are not listed here and depend on the applications you
are implementing. For example, you can implement Define Enterprise Structures for Human Capital Management,
Project Management, and Sales Management.
Using Single or Multiple Classifications for an

Organization: Points to Consider
Organization classifications define the purpose of the organization, whether it's a department, a division, or a legal entity. In
some enterprises, organization classifications overlap, which means that the same organization can be assigned multiple
classifications. For example, one organization within an enterprise might be both a project organization and a department.
The classifications of organizations vary according to business objectives, legal structure, industry, company culture, size
and type of growth. You can create organizations in Oracle Fusion with one or more classifications to reflect your enterprise
structure.
Defining an Organization with One Classification

Define each organization in your enterprise as a separate organization with a single classification to reflect your enterprise
structure and provide flexibility for growth and expansion. The advantage of setting up separate organizations is the ability to
add further organizations to expand the enterprise easily. For example, if your enterprise acquires another company which
has a different line of business in a country in which you employ people, then you can create a division to represent the new
company, a legal entity (classified as a legal employer and payroll statutory unit) for the company's payroll tax and social
insurance, and any additional departments for workers.
Defining an Organization with Multiple Classifications

Define an organization with multiple classifications if the organization has multiple purposes. For example, if you want to use
an organization within the Oracle Sales Cloud applications as a department that employs sales people, you can classify it as a
department and a sales organization. Or, if your enterprise operates and employs people in multiple countries, you can create
a legal entity for each country using the Oracle Fusion Legal Entity Configurator and then use the Manage Departments task
to classify them as a department as well.
Related Topics
• Modeling Your Financial Reporting Structure in Oracle Fusion: Example
Configuration Workbench: Explained

The Oracle Fusion Enterprise Structures Configurator (ESC) is an interview based tool to help you analyze how to represent
your business in the Oracle Fusion Applications. The interview process poses questions about the name of your enterprise,
legal structure, management reporting structure, and primary organizing principle for your business. Based on your answers,
the applications suggest the best practices to use to implement business units in your enterprise. You can use or modify
these answers to ensure that both your reporting and administrative goals are met in your Oracle Fusion deployment.
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Global Enterprise Configuration: Points to Consider

Start your global enterprise structure configuration by discussing what your organization's reporting needs are and how to
represent those needs in the Oracle Fusion Applications. The following are some questions and points to consider as you
design your global enterprise structure in Oracle Fusion.
• Enterprise Configuration
• Business Unit Management
• Security Structure
• Compliance Requirements
Enterprise Configuration
• What is the level of configuration needed to achieve the reporting and accounting requirements?
• What components of your enterprise do you need to report on separately?
• Which components can be represented by building a hierarchy of values to provide reporting at both detail and
summary levels?
• Where are you on the spectrum of centralization versus decentralization?
Business Unit Management

• What reporting do I need by business unit?
• How can you set up your departments or business unit accounts to achieve departmental hierarchies that report
accurately on your lines of business?
• What reporting do you need to support the managers of your business units, and the executives who measure
them?
• How often are business unit results aggregated?
• What level of reporting detail is required across business units?
Security Structure
• What level of security and access is allowed?
• Are business unit managers and the people that report to them secured to transactions within their own business
unit?
• Are the transactions for their business unit largely performed by a corporate department or shared service center?
Compliance Requirements
• How do you comply with your corporate external reporting requirements and local statutory reporting requirements?
• Do you tend to prefer a corporate first or an autonomous local approach?
• Where are you on a spectrum of centralization, very centralized or decentralized?
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Modeling Your Enterprise Structure in Oracle Fusion:

Example
This example uses a fictitious global company to demonstrate the analysis that can occur during the enterprise structure
configuration planning process.
Your company, InFusion Corporation, is a multinational conglomerate that operates in the United States (US) and the United
Kingdom (UK).
Scenario
InFusion Corporation has 400 plus employees and revenue of $120 million. Your product line includes all the components to
build and maintain air quality monitoring (AQM) systems for homes and businesses. You also provide financial services to your
customers through a separate division.
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The following figure illustrates the InFusion enterprise structure.
The upper part of the figure illustrates a legal company organization for companies in various political regions held by a public
company. They enter into transactions initiated by two business divisions, Air Quality Control and Financial Services.
The lower part of the figure illustrates the management structure, which reflects the two businesses, Air Quality Management
and Financial Services in strategic business units. The corporate administration is centralized and serves both businesses and
all companies.
Regional managers have direct reporting lines to worldwide business managers, and dotted line responsibility to Regional
Vice Presidents serving as general managers.
The Corporate Services strategic business unit provides common administrative, payroll, and procurement services.
The companies that enter into the transactions on behalf of the strategic business units are linked to the strategic business
units by double-headed arrows. Other facts:
• Three companies enter into transaction for the AQM division.
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• One company enters transactions for Financial Services exclusively.
• The holding company enters into transactions on behalf of both divisions and the corporate headquarters.
• Each company accounts for itself in the Oracle Fusion General Ledger.
• The companies in the same jurisdiction share the ledger using balancing segments.
• The company that is in another jurisdiction uses a different ledger.
• All the companies share the chart of accounts.
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Understanding Enterprise Structures Enterprises
2 Enterprises
Enterprise: Explained
An enterprise is a collection of legal entities under common control and management.
Enterprise Defined
When implementing Oracle Fusion Applications you operate within the context of an enterprise that has already been created
in the application for you. This is either a predefined enterprise or an enterprise that has been created in the application by
a system administrator. An enterprise organization captures the name of the deploying enterprise and the location of the
headquarters. In Oracle Fusion Applications, an organization classified as an enterprise is defined before defining any other
organizations in the HCM Common Organization Model. All other organizations are defined as belonging to an enterprise.
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Understanding Enterprise Structures Enterprises
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Understanding Enterprise Structures Jurisdictions and Legal Authorities
3 Jurisdictions and Legal Authorities
Jurisdictions and Legal Authorities: Explained

You are required to register your legal entities with legal authorities in the jurisdictions where you conduct business. Register
your legal entities as required by local business requirements or other relevant laws. For example, register your legal entities
for tax reporting to report sales taxes or value added taxes.
Define jurisdictions and related legal authorities to support multiple legal entity registrations, which are used by Oracle Fusion
Tax and Oracle Fusion Payroll. When you first create a legal entity, the Oracle Fusion Legal Entity Configurator automatically
creates one legal reporting unit for that legal entity with a registration.
Jurisdictions: Explained
Jurisdiction is a physical territory such as a group of countries, country, state, county, or parish where a particular piece of
legislation applies. French Labor Law, Singapore Transactions Tax Law, and US Income Tax Laws are examples of particular
legislation that apply to legal entities operating in different countries' jurisdictions. Judicial authority may be exercised within a
jurisdiction.
Types of jurisdictions are:
• Identifying Jurisdiction
• Income Tax Jurisdiction
• Transaction Tax Jurisdiction
Identifying Jurisdiction
For each legal entity, select an identifying jurisdiction. An identifying jurisdiction is your first jurisdiction you must register
with to be allowed to do business in a country. If there is more than one jurisdiction that a legal entity needs to register with
to commence business, select one as the identifying jurisdiction. Typically the identifying jurisdiction is the one you use to
uniquely identify your legal entity.
Income tax jurisdictions and transaction tax jurisdictions do not represent the same jurisdiction. Although in some countries,
the two jurisdictions are defined at the same geopolitical level, such as a country, and share the same legal authority, they are
two distinct jurisdictions.
Income Tax Jurisdiction

Create income tax jurisdictions to properly report and remit income taxes to the legal authority. Income tax jurisdictions by
law impose taxes on your financial income generated by all your entities within their jurisdiction. Income tax is a key source of
funding that the government uses to fund its activities and serve the public.
Transaction Tax Jurisdiction

Create transaction tax jurisdictions through Oracle Fusion Tax in a separate business flow, because of the specific needs
and complexities of various taxes. Tax jurisdictions and their respective rates are provided by suppliers and require periodic
maintenance. Use transaction tax jurisdiction for legal reporting of sales and value added taxes.
13
Understanding Enterprise Structures Jurisdictions and Legal Authorities
Legal Authorities: Explained

A legal authority is a government or legal body that is charged with powers to make laws, levy and collect fees and taxes, and
remit financial appropriations for a given jurisdiction.
For example, the Internal Revenue Service is the authority for enforcing income tax laws in United States. In some countries,
such as India and Brazil, you are required to print legal authority information on your tax reports. Legal authorities are defined
in the Oracle Fusion Legal Entity Configurator. Tax authorities are a subset of legal authorities and are defined using the same
setup flow.
Legal authorities are not mandatory in Oracle Fusion Human Capital Management (HCM), but are recommended and are
generally referenced on statutory reports.
Legislative Data Groups: Explained

Legislative data groups are a means of partitioning payroll and related data. At least one legislative data group is required for
each country where the enterprise operates. Each legislative data group is associated with one or more payroll statutory units.
Each payroll statutory unit can belong to only one legislative data group.
Payroll-related information, such as elements, is organized by legislative data groups. Each legislative data group:
• Marks a legislation in which payroll is processed.
• Is associated with a legislative code, currency, and its own cost allocation key flexfield structure.
• Is a boundary that can share the same set up and still comply with the local laws.
• Can span many jurisdictions as long as they are within one country.
• Can contain many legal entities that act as payroll statutory units.
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Understanding Enterprise Structures Legal Entities
4 Legal Entities
Legal Entities: Explained

A legal entity is a recognized party with rights and responsibilities given by legislation.
Legal entities have the following rights and responsibilities to:
• Own property
• Trade
• Repay debt
• Account for themselves to regulators, taxation authorities, and owners according to rules specified in the relevant
legislation
Their rights and responsibilities may be enforced through the judicial system. Define a legal entity for each registered company
or other entity recognized in law for which you want to record assets, liabilities, expenses and income, pay transaction taxes,
or perform intercompany trading.
A legal entity has responsibility for elements of your enterprise for the following reasons:
• Facilitating local compliance
• Minimizing the enterprise's tax liability
• Preparing for acquisitions or disposals of parts of the enterprise
• Isolating one area of the business from risks in another area. For example, your enterprise develops property and
also leases properties. You could operate the property development business as a separate legal entity to limit risk to
your leasing business.
The Role of Your Legal Entities

In configuring your enterprise structure in Oracle Fusion Applications, you need to understand that the contracting party on
any transaction is always the legal entity. Individual legal entities:
• Own the assets of the enterprise
• Record sales and pay taxes on those sales
• Make purchases and incur expenses
• Perform other transactions
Legal entities must comply with the regulations of jurisdictions, in which they register. Europe now allows for companies to
register in one member country and do business in all member countries, and the US allows for companies to register in one
state and do business in all states. To support local reporting requirements, legal reporting units are created and registered.
15
You are required to publish specific and periodic disclosures of your legal entities' operations based on different jurisdictions'
requirements. Certain annual or more frequent accounting reports are referred to as statutory or external reporting. These
reports must be filed with specified national and regulatory authorities. For example, in the United States (US), your publicly
owned entities (corporations) are required to file quarterly and annual reports, as well as other periodic reports, with the
Securities and Exchange Commission (SEC), who enforces statutory reporting requirements for public corporations.
Individual entities privately held or held by public companies do not have to file separately. In other countries, your individual
entities do have to file in their own name, as well as at the public group level. Disclosure requirements are diverse. For
example, your local entities may have to file locally to comply with local regulations in a local currency, as well as being
included in your enterprise's reporting requirements in different currency.
A legal entity can represent all or part of your enterprise's management framework. For example, if you operate in a large
country such as the United Kingdom or Germany, you might incorporate each division in the country as a separate legal
entity. In a smaller country, for example Austria, you might use a single legal entity to host all of your business operations
across divisions.
Legal Entity in Oracle Fusion: Points to Consider

Oracle Fusion Applications support the modeling of your legal entities. If you make purchases from or sell to other legal
entities, define these other legal entities in your customer and supplier registers, which are part of the Oracle Fusion Trading
Community Architecture.
When your legal entities are trading with each other, you represent both of them as legal entities and also as customers
and suppliers in your customer and supplier registers. Use legal entity relationships to determine which transactions are
intercompany and require intercompany accounting. Your legal entities can be identified as legal employers and therefore, are
available for use in Human Capital Management (HCM) applications.
There are several decisions to consider when you create legal entities.
• The importance of legal entity in transactions
• Legal entity and its relationship to business units
• Legal entity and its relationship to divisions
• Legal entity and its relationship to ledgers
• Legal entity and its relationship to balancing segments
• Legal entity and its relationship to consolidation rules
• Legal entity and its relationship to intercompany transactions
• Legal entity and its relationship to worker assignments and legal employer
• Legal entity and payroll reporting
• Legal reporting units
The Importance of Legal Entity in Transactions

All of the assets of the enterprise are owned by individual legal entities. Oracle Fusion Financials allow your users to enter legal
entities on transactions that represent a movement in value or obligation.
For example, the creation of a sales order creates an obligation for the legal entity that books the order to deliver the goods
on the acknowledged date, and an obligation of the purchaser to receive and pay for those goods. Under contract law in
16
most countries, damages can be sought for both actual losses, putting the injured party in the same state as if they had not
entered into the contract, and what is called loss of bargain, or the profit that would have made on a transaction.
In another example, if you revalued your inventory in a warehouse to account for raw material price increases, the revaluation
and revaluation reserves must be reflected in your legal entity's accounts. In Oracle Fusion Applications, your inventory within
an inventory organization is managed by a single business unit and belongs to one legal entity.
Legal Entity and its Relationship to Business Units

A business unit can process transactions on behalf of many legal entities. Frequently, a business unit is part of a single legal
entity. In most cases the legal entity is explicit on your transactions. For example, a payables invoice has an explicit legal entity
field. Your accounts payables department can process supplier invoices on behalf of one or many business units.
In some cases, your legal entity is inferred from your business unit that is processing the transaction. For example, Business
Unit ACM UK has a default legal entity of InFusion UK Ltd. When a purchase order is placed in ACM UK, the legal entity
InFusion UK Ltd is legally obligated to the supplier. Oracle Fusion Procurement, Oracle Fusion Project Portfolio Management,
and Oracle Fusion Supply Chain applications rely on deriving the legal entity information from the business unit.
Legal Entity and its Relationship to Divisions

The division is an area of management responsibility that can correspond to a collection of legal entities. If desired, you can
aggregate the results for your divisions by legal entity or by combining parts of other legal entities. Define date-effective
hierarchies for your cost center or legal entity segment in your chart of accounts to facilitate the aggregation and reporting by
division. Divisions and legal entities are independent concepts.
Legal Entity and its Relationship to Ledgers

One of your major responsibilities is to file financial statements for your legal entities. Map legal entities to specific ledgers
using the Oracle Fusion General Ledger Accounting Configuration Manager. Within a ledger, you can optionally map a legal
entity to one or more balancing segment values.
Legal Entity and its Relationship to Balancing Segments

Oracle Fusion General Ledger supports up to three balancing segments. Best practices recommend that one of these
segments represents your legal entity to ease your requirement to account for your operations to regulatory agencies, tax
authorities, and investors. Accounting for your operations means you must produce a balanced trial balance sheet by legal
entity. If you account for many legal entities in a single ledger, you must:
1. Identify the legal entities within the ledger.
2. Balance transactions that cross legal entity boundaries through intercompany transactions.
3. Decide which balancing segments correspond to each legal entity and assign them in Oracle Fusion General
Ledger Accounting Configuration Manager. Once you assign one balancing segment value in a ledger, then all
your balancing segment values must be assigned. This recommended best practice facilitates reporting on assets,
liabilities, and income by legal entity.
Represent your legal entities by at least one balancing segment value. You may represent it by two or three balancing
segment values if more granular reporting is required. For example, if your legal entity operates in multiple jurisdictions in
Europe, you might define balancing segment values and map them to legal reporting units. You can represent a legal entity
with more than one balancing segment value. Do not use a single balancing segment value to represent more than one legal
entity.
In Oracle Fusion General Ledger, there are three balancing segments. You can use separate balancing segments to represent
your divisions or strategic business units to enable management reporting at the balance sheet level for each division or
business unit. For example, use this solution to empower your business unit and divisional managers to track and assume
responsibility for their asset utilization or return on investment. Using multiple balancing segments is also useful when you
know at the time of implementation that you are disposing of a part of a legal entity and need to isolate the assets and
liabilities for that entity.
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Important
Implementing multiple balancing segments requires every journal entry that is not balanced by division or business
unit, to generate balancing lines. Also, you cannot change to multiple balancing segments easily after you have
begun to use the ledger because your historical data is not balanced by the new multiple balancing segments.
Restating historical data must be done at that point.
If your enterprise regularly spins off businesses or if they hold managers of those businesses accountable for
utilization of assets, it make be useful to identify the business with a balancing segment value. If you decided
to account for each legal entity in a separate ledger, there is no requirement to identify the legal entity with a
balancing segment value within the ledger.
Tip
While transactions that cross balancing segments don't necessarily cross legal entity boundaries, all transactions
that cross legal entity boundaries must cross balancing segments. If you make an acquisition or are preparing
to dispose of a portion of your enterprise, you may want to account for that part of the enterprise in its own
balancing segment even if it is not a separate legal entity. If you do not map legal entities sharing the same ledger
to balancing segments, you are not be able to distinguish them using the intercompany functionality or track their
individual equity.
Legal Entity and Its Relationship to Consolidation Rules

In Oracle Fusion Applications you can map legal entities to balancing segments and then define consolidation rules using
your balancing segments. You are creating a relationship between the definition of your legal entities and their role in your
consolidation.
Legal Entity and its Relationship to Intercompany Transactions

Use Oracle Fusion Intercompany feature to create intercompany entries automatically across your balancing segments.
Intercompany processing updates legal ownership within the enterprise's groups of legal entities. Invoices or journals
are created as needed. To limit the number of trading pairs for your enterprise, set up intercompany organizations and
assign then to your authorized legal entities. Define processing options and intercompany accounts to use when creating
intercompany transactions and to assist in consolidation elimination entries. These accounts are derived and automatically
entered on your intercompany transactions based on legal entities assigned to your intercompany organizations.
Intracompany trading, in which legal ownership isn't changed but other organizational responsibilities are, is also supported.
For example, you can track assets and liabilities that move between your departments within your legal entities by creating
departmental level intercompany organizations.
Tip
In the Oracle Fusion Supply Chain applications, model intercompany relationships using business units, from
which legal entities are inferred.
Legal Entity and Its Relationship to Worker Assignments and Legal Employer
Legal entities that employ people are called legal employers in the Oracle Fusion Legal Entity Configurator. You must enter
legal employers on worker assignments in Oracle Fusion HCM.
Legal Entity and Payroll Reporting

Your legal entities are required to pay payroll tax and social insurance such as social security on your payroll. In Oracle Fusion
Applications, you can register payroll statutory units to pay and report on payroll tax and social insurance on behalf of many
of your legal entities. As the legal employer, you might be required to pay payroll tax, not only at the national level, but also
at the local level. You meet this obligation by establishing your legal entity as a place of work within the jurisdiction of a local
authority. Set up legal reporting units to represent the part of your enterprise with a specific legal reporting obligation. You can
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also mark these legal reporting units as tax reporting units, if the legal entity must pay taxes as a result of establishing a place
of business within the jurisdiction.
Related Topics
• Creating Legal Entities in the Enterprise Structures Configurator: Points to Consider
What's a payroll statutory unit?

Payroll statutory units are legal entities that are responsible for paying workers, including the payment of payroll tax and
social insurance. A payroll statutory unit can pay and report on payroll tax and social insurance on behalf of one or many
legal entities, depending on the structure of your enterprise. For example, if you are a multinational, multicompany enterprise,
then you register a payroll statutory unit in each country where you employ and pay people. You can optionally register a
consolidated payroll statutory unit to pay and report on workers across multiple legal employers within the same country. You
associate a legislative data group with a payroll statutory unit to provide the correct payroll information for workers.
What's a legal employer?

A legal employer is a legal entity that employs workers. You define a legal entity as a legal employer in the Oracle Fusion Legal
Entity Configurator.
The legal employer is captured at the work relationship level, and all employment terms and assignments within that
relationship are automatically with that legal employer. Legal employer information for worker assignments is also used for
reporting purposes.
What's a tax reporting unit?

Use a tax reporting unit to group workers for the purpose of tax and social insurance reporting. A tax reporting unit is the
Oracle Fusion Human Capital Management (HCM) version of the legal reporting unit in Oracle Fusion Applications.
To create a tax reporting unit, you use the Oracle Fusion Legal Entity Configurator to define a legal entity as a payroll statutory
unit. When you identify a legal entity as a payroll statutory unit, the application transfers the legal reporting units that are
associated with that legal entity to Oracle Fusion HCM as tax reporting units. You can then access the tax reporting unit using
the Manage Legal Reporting Unit HCM Information task.
If you identify a legal entity as a legal employer only, and not as a payroll statutory unit, you must enter a parent payroll
statutory unit. The resulting legal reporting units are transferred to Oracle Fusion HCM as tax reporting units, but as children
of the parent payroll statutory unit that you entered, and not the legal entity that you identified as a legal employer.
Planning Legal Reporting Units: Points to Consider

Each of your legal entities has at least one legal reporting unit. Legal reporting units can also be referred to as establishments.
You can define either domestic or foreign establishments. Define legal reporting units by physical location, such as a sales
office, or by logical unit, such as groups of employees subject to different reporting requirements. For example, define logical
legal reporting units for both salaried and hourly paid employees.
Another example of logical reporting units is in the Oracle Fusion Human Capital Management (HCM) system where you use
your legal reporting units to model your tax reporting units. A tax reporting unit is used to group workers for the purpose of
tax reporting.
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Planning Legal Reporting Units

Plan and define your legal reporting units at both the local and national levels if you operate within the administrative
boundaries of a jurisdiction that is more granular than country. For example, your legal entity establishes operations in a
country that requires reporting of employment and sales taxes locally as well as nationally. Therefore, you need more than
one legally registered location to meet this legal entity's reporting requirements in each local area. Additionally, legal entities
in Europe operate across national boundaries, and require you to set up legal reporting units for the purposes of local
registration in each country. There can be multiple registrations associated with a legal reporting unit. However, there can be
only one identifying registration, defined by the legal authority used for the legal entity or legal reporting unit, associated with
the legal reporting unit.
Designing an Enterprise Configuration: Example

This example illustrates how to set up an enterprise based on a global company operating mainly in the US and the UK with a
single primary industry.
Scenario
InFusion Corporation is a multinational enterprise in the high technology industry with product lines that include all the
components that are required to build and maintain air quality monitoring (AQM) systems for homes and businesses. Its
primary locations are in the US and the UK, but it has smaller outlets in France, Saudi Arabia, and the United Arab Emirates
(UAE).
Enterprise Details
In the US, InFusion employs 400 people and has company revenue of $120 million. Outside the US, InFusion employs 200
people and has revenue of $60 million.
Analysis
InFusion requires three divisions.
• The US division covers the US locations.
• The Europe division covers UK and France.
• Saudi Arabia and the UAE are covered by the Middle East division.
InFusion requires legal entities with legal employers, payroll statutory units, tax reporting units, and legislative data groups for
the US, UK, France, Saudi Arabia, and UAE, in order to employ and pay its workers in those countries.
InFusion requires a number of departments across the enterprise for each area of business, such as sales and marketing, and
a number of cost centers to track and report on the costs of those departments.
Infusion has general managers responsible for business units within each country. Those business units may share reference
data. Some reference data can be defined within a reference data set that multiple business units may subscribe to. Business
units are also required for financial purposes. Financial transactions are always processed within a business unit.
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Resulting Enterprise Configuration

Based on this analysis, InFusion requires an enterprise with multiple divisions, ledgers, legal employers, payroll statutory units,
tax reporting units, legislative data groups, departments, cost centers, and business units.
This figure illustrates the enterprise configuration that results from the analysis of InFusion Corporation.
Related Topics
• Enterprise Structures: Overview
• Modeling Your Enterprise Management Structure in Oracle Fusion: Example
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22
Understanding Enterprise Structures Management Reporting Structures
5 Management Reporting Structures

Division: Explained
Managing multiple businesses requires that you segregate them by their strategic objectives and measure their results.
Responsibility to reach objectives can be delegated along the management structure. Although related to your legal structure,
the business organizational hierarchies do not reflect directly the legal structure of the enterprise. The management entities
and structure can include:
• Divisions and subdivisions

• Lines of business
• Other strategic business units
• Their own revenue and cost centers
These organizations can be included in many alternative hierarchies and used for reporting, as long as they have
representation in the chart of accounts.
Divisions
A division refers to a business oriented subdivision within an enterprise, in which each division organizes itself differently to
deliver products and services or address different markets. A division can operate in one or more countries, and can be
comprised of many companies or parts of different companies that are represented by business units.
A division is a profit center or grouping of profit and cost centers, where the division manager is responsible for attaining
business goals including profit goals. A division can be responsible for a share of the company's existing product lines or for
a separate business. Managers of divisions may also have return on investment goals requiring tracking of the assets and
liabilities of the division. The division manager generally reports to a top corporate executive.
By definition a division can be represented in the chart of accounts. Companies may choose to represent product lines,
brands, or geographies as their divisions: their choice represents the primary organizing principle of the enterprise. This may
coincide with the management segment used in segment reporting.
Oracle Fusion Applications supports a qualified management segment and recommends that you use this segment to
represent your hierarchy of business units and divisions. If managers of divisions have return on investment goals, make the
management segment a balancing segment. Oracle Fusion applications allows up to three balancing segments. The values of
the management segment can be comprised of business units that roll up in a hierarchy to report by division.
Historically, divisions were implemented as a node in a hierarchy of segment values. For example, Oracle E-Business Suite
has only one balancing segment, and often the division and legal entity are combined into a single segment where each value
stands for both division and legal entity.
Use of Divisions in Oracle Fusion Human Capital Management (HCM)

Divisions are used in HCM to define the management organization hierarchy, using the generic organization hierarchy. This
hierarchy can be used to create organization based security profiles.
Business Units: Explained

A business unit is a unit of an enterprise that performs one or many business functions that can be rolled up in a management
hierarchy. A business unit can process transactions on behalf of many legal entities. Normally, it has a manager, strategic
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objectives, a level of autonomy, and responsibility for its profit and loss. Roll business units up into divisions if you structure
your chart of accounts with this type of hierarchy.
In Oracle Fusion Applications:
• Assign your business units to one primary ledger. For example, if a business unit is processing payables invoices
they will need to post to a particular ledger. This assignment is mandatory for your business units with business
functions that produce financial transactions.
• Use business unit as a securing mechanism for transactions. For example, if you run your export business separately
from your domestic sales business, secure the export business data to prevent access by the domestic sales
employees. To accomplish this security, set up the export business and domestic sales business as two separate
business units.
The Oracle Fusion Applications business unit model provides the following advantages:
• Allows for flexible implementation
• A consistent entity that controls and reports on transactions
• Sharing sets of reference data across applications
Business units process transactions using reference data sets that reflect your business rules and policies and can differ from
country to country. With Oracle Fusion Application functionality, you can choose to share reference data, such as payment
terms and transaction types, across business units, or you can choose to have each business unit manage its own set
depending on the level at which you wish to enforce common policies.
In countries where gapless and chronological sequencing of documents is required for subledger transactions, define your
business units in alignment with your legal entities to ensure the uniqueness of sequencing.
In summary, use business units in the following ways:
• Management reporting
• Processing of transactions
• Security of transactional data
• Reference data definition and sharing
Brief Overview of Business Unit Security

Business units are used by a number of Oracle Fusion Applications to implement data security. You assign data roles to
your users to give them access to data in business units and permit them to perform specific functions on this data. When
a business function is enabled for a business unit, the application can trigger the creation of data roles for this business unit
based on the business function's related job roles.
For example, if a payables invoicing business function is enabled, then it is clear that there are employees in this business
unit that perform the function of payables invoicing, and need access to the payables invoicing functionality. Roles authorized
to this function for the data in this business unit are automatically created. Use Oracle Fusion Human Capital Management
(HCM) security profiles to administer security for employees in business units.
Related Topics
• Reference Data Sets and Sharing Methods: Explained
Business Functions: Explained

A business unit can perform many business functions in Oracle Fusion Applications. Prior to Oracle Fusion Applications,
operating units in Oracle E-Business Suite were assumed to perform all business functions, while in Oracle PeopleSoft, each
business unit had one specific business function. Oracle Fusion Applications blends these two models and allows defining
business units with one or many business functions.
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Business Functions
A business function represents a business process, or an activity that can be performed by people working within a business
unit and describes how a business unit is used. The following business functions exist in Oracle Fusion applications:
• Billing and revenue management

• Collections management
• Customer contract management
• Customer payments
• Expense management
• Incentive compensation
• Marketing
• Materials management
• Inventory management
• Order fulfillment orchestration
• Payables invoicing
• Payables payments
• Procurement
• Procurement contract management
• Project accounting
• Receiving
• Requisitioning
• Sales
Although there is no relationship implemented in Oracle Fusion Applications, a business function logically indicates a presence
of a department in the business unit with people performing tasks associated with these business functions. A business
unit can have many departments performing various business functions. Optionally, you can define a hierarchy of divisions,
business units, and departments as a tree over HCM organization units to represent your enterprise structure.
Note
This hierarchy definition is not required in the setup of your applications, but is a recommended best practice.
Your enterprise procedures can require a manager of a business unit to have responsibility for their profit and loss statement.
In such cases, any segment that allows the identification of associated revenue and costs can be used as a profit center
identification. The segment can be qualified as a cost center segment.
However, there are cases where a business unit is performing only general and administrative functions, in which case your
manager's financial goals are limited to cost containment or recovering of service costs. For example, if a shared service
center at the corporate office provides services for more commercially-oriented business units, it does not show a profit and
therefore, only tracks its costs.
In other cases, where your managers have a responsibility for the assets of the business unit, a balance sheet can be
produced. The recommended best practice to produce a balance sheet is to setup the business unit as a balancing segment
in the chart of accounts. The business unit balancing segment can roll up to divisions or other entities to represent your
enterprise structure.
When a business function produces financial transactions, a business unit must be assigned to a primary ledger, and a
default legal entity. Each business unit can post transactions to a single primary ledger, but it can process transactions for
many legal entities.
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The following business functions generate financial transactions and will require a primary ledger and a default legal entity:
• Billing and revenue management

• Collections management
• Customer payments
• Expense management
• Materials management
• Payables invoicing
• Project accounting
• Receiving
• Requisitioning
Business Unit Hierarchy: Example

For example, your InFusion America Company provides:
• Air quality monitoring systems through your division InFusion Air Systems
• Customer financing through your division InFusion Financial Services
The InFusion Air Systems division further segments your business into the System Components and Installation Services
subdivisions. Your subdivisions are divided by business units:
• System Components by products: Air Compressors and Air Transmission

• Installation Services by services: Electrical and Mechanical
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Oracle Fusion applications facilitates independent balance sheet rollups for legal and management reporting by offering
up to three balancing segments. Hierarchies created using the management segment can provide the divisional results.
For example, it is possible to define management segment values to correspond to business units, and arrange them in a
hierarchy where the higher nodes correspond to divisions and subdivisions, as in the Infusion US Division example above.
Business Functions and Departments: How They Fit

Together
A business unit running a business function indicates that the business unit has a department performing that function.
For example, the business unit running the accounts payable business function has at least one accounts payable
department.
Another example is a business unit running a sales business function. This business unit has both sales and marketing
departments.
Sales and marketing department hierarchies are maintained in the Oracle Sales Cloud system using the resource manager
functionality. The department hierarchy utilized by Human Capital Management (HCM) can overlap, align with, or differ from
the Oracle Sales Cloud sales organization hierarchy in both the number of levels and the organizational lines.
Shared Service Centers: Explained

Oracle Fusion Applications allows defining relationships between business units to outline which business unit provides
services to the other business units.
Service Provider Model

The service provider model centralizes the following business functions:
• Procurement
◦ Services business units that enable the Requisitioning business function
◦ Processes requisitions and negotiates supplier terms for client business units
• Payables Payment
◦ Services business units that enable the Payables Invoicing business function
◦ Processes payments for client business units
• Customer Payments
◦ Services business units that enable the Billing and Revenue Management business function.
◦ Processes payments for the transactions of client business units assigned the Billing and Revenue
Management business function.
This functionality is used to frame service level agreements and drive security. The service provider relationships provides you
with a clear record of how your business operations are centralized. For other centralized processing, business unit security
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is used (known in Oracle EBS as Multi-Org Access Control). This means that users who work in a shared service center have
the ability to get access and process transactions on behalf of many business units.
Related Topics
• Centralized Payment Processing Across Business Units: Explained
Project Units: Explained

Project units are operational subsets of an enterprise that conduct business operations using projects and need to enforce
consistent project planning, management, analysis, and reporting. Project units often represent lines of business, such as
Consulting Services, Sales, and Research and Development. You must set up at least one project unit to use in Oracle Fusion
Project Portfolio Management.
You can maintain independent setup data for each project unit while sharing a single approach to financial management
across all project units. The following diagram shows two project units that share a common approach to financial
management and data. Each project unit maintains separate reference data for managing projects.
General Properties
General property options include the default reference data set to be used for any new reference data object associated with
the project unit. You can override the default set for each reference data object. The method of project number creation,
either manual or automatic, and daily or weekly full time equivalent hours for reporting purposes, are also included in general
properties.
Set Assignments
You assign sets to project units to determine how reference data is shared across different lines of business in a company. A
project unit is a set determinant for the following objects.
• Project definition, which includes set-enabled reference data for the project definition such as class code, financial
plan type, project role, and project status.
• Project transaction types, which include set-enabled reference data for project transactions such as project
expenditure type and project work type.
Set assignment configuration includes the following options for each project unit.
• Reference set value: By default, the set for each reference data object is from the default set specified for the project
unit.
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• Reference data objects: For the project definition and project transaction types.
Related Business Units

You associate business units with a project unit to identify the business units that are accountable for financial transactions of
projects in each project unit. You can change the project unit and business unit association if the combination has not been
used on a project or project template. If a business unit is not associated with any project unit, then the business unit is valid
for all project units.
Business Units and Projects: Explained

Business units are subsets of an enterprise that perform one or more business functions and can be consolidated in both a
managerial and legal hierarchy. Project accounting is an example of a business function that is set up by business unit. Other
examples are billing and revenue management, customer contract management, and payables invoicing.
Business units are defined centrally. During implementation, you must enable the Project Accounting business unit for use
with Oracle Fusion Project Portfolio Management.
You can partition financial data using business units while sharing a single approach to project management across all
business units. The following diagram shows two business units, one from the United Kingdom (UK) and one from the United
States (US). These business units have the same research and development processes, so a single project unit is used by
both business units to facilitate common project management practices.
Project Setup
Each business unit that you enable requires implementing project setup options for the following areas:
• Project and task owning organizations are associated with the business unit to restrict these organizations in project
creation flow.
Important
To own projects or tasks, an organization must be classified as project and task owning organization,
belong to the hierarchy associated with the business unit, and be active on the system date. The project
type class must be permitted to use the organization to create projects.
• Project expenditure organizations are associated with the business unit to restrict which organizations can incur
costs on the project.
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• Project costing establishes calendar, asset, overtime, and processing options for project-related costs.
• Project units are associated with business units to restrict the business units that can handle project transactions.
When a project unit isn't associated with a business unit, any business unit in your enterprise can process project
transactions.
• Cross-charge transaction options define conversion rate and date types and cross-charge transaction processing
methods.
• Customer contract management defines business function properties, such as currency conversion, cross-charge
transaction, and billing options, for each contract business unit.
Note
A project can be associated with only one business unit.
Reference Data Sharing

Assign sets to business units to determine how reference data is shared across applications. A business unit is a set
determinant for the following objects:
• Project accounting definition, including set-enabled reference data such as project type.
• Project and contract billing, including set-enabled reference data such as invoice format.
• Project rates, including set-enabled reference data such as rate schedules.
What's the difference between a business unit and a

project unit?
Use business units to control and report on financial transactions. For each business unit, you configure fundamental
operating settings to control project setup, expenditure processing, and cross-charge transaction processing.
Use project units to enforce consistent project management practices for projects across multiple business units. For each
project unit, you configure project management settings such as the default set assignment, project numbering series, full-
time equivalent hours, related business units, and reporting options.
What's the difference between business units in

Oracle PeopleSoft and Oracle Fusion Applications?
Oracle PeopleSoft business units and Oracle E-Business Suite operating units have been combined to create the new Oracle
Fusion Applications business unit functionality.
In Oracle PeopleSoft Enterprise, a business unit housed the configuration of only one business function.
A business unit can be configured for multiple business functions in Oracle Fusion Applications. The advantage is you no
longer have to name multiple business units with the same name as you did in PeopleSoft Enterprise.
In PeopleSoft Enterprise, business units can be consolidated in a hierarchy. You can see the results of a single business unit
or a set of business units. PeopleSoft Enterprise also allows you to produce financial statements for a business unit.
In Oracle Fusion Applications, this is accomplished by creating a business unit representation in a chart of accounts and
building appropriate hierarchies.
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What's the difference between business units

in Oracle E-Business Suite and Oracle Fusion
Applications?
In Oracle E-Business Suite, operating units are used to determine in which ledger a given subledger transaction is accounted
and to partition setup reference data, processing and security.
In Oracle Fusion Applications, enable business units with all their business functions to replace your operating units in the
Oracle E-Business Suite. Oracle Fusion Applications provide the additional functionality of assigning a manager to the
business unit.
Modeling Your Business Units in Your Enterprise

Structure in Oracle Fusion: Example
This example uses a fictitious global company to demonstrate the business unit analysis that can occur during the enterprise
structure configuration planning process.
Scenario
Kingdom (UK). InFusion has purchased an Oracle Fusion enterprise resource planning (ERP) solution including Oracle Fusion
General Ledger and all of the Oracle Fusion subledgers. You are chairing a committee to discuss creation of a model for your
global enterprise structure including both your US and UK operations.
InFusion Corporation
build and maintain air quality monitoring (AQM) systems for homes and businesses. You have two distribution centers and
three warehouses that share a common item master in the US and UK. Your financial services organization provides funding
to your customers for the start up costs of these systems.
Analysis
The following are elements you need to consider in creating your business units for your global enterprise structure.
• At which level do you track profit and loss (revenue and expenses) and strategic objectives?
• Do you require balance sheet for your management entities? Is capital utilization reported on the level of business
units?
• Do you use business units and balancing segments to represent your businesses and divisions?
• Do you secure data by a segment representing each department or legal entity or both to produce useful, but
confidential management reports?
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• Is your procurement centralized, or do individual business units perform the procurement function?
• Can your business units process transactions on behalf of many legal entities?
• How do you want to represent your business units and divisions in the chart of accounts?
• How will your business units be represented in ledgers?
Global Enterprise Structure Model With Business Unit

The following figure summarizes the model that your committee has designed and uses numerical values to provide a sample
representation of your structure. The model includes the recommendation to create four separate business units (BU):
• InFusion America Inc. has BU 1: US Systems and BU 4: Corporate Processing Shared Service Center
• InFusion Financial Services Inc. has BU 2: Financial Services
• InFusion UK Services Ltd. has BU 3: UK Systems
Business Units 1, 2, and 3 record the transactions of their respective legal entities. Business Unit 4 processes the
corporate level transactions, including payable, procurement and human resource functions for the entire enterprise. The
implementation of BU 4 reduces administrative costs, provides consistent enforcement of company policies, and improves
efficiency across the organization.
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Understanding Enterprise Structures Financial Reporting Structures
6 Financial Reporting Structures

Representing Your Enterprise Structure in Your
Financial Reporting Structure: Overview
Represent your enterprise structures in your chart of accounts to track and report on your financial objectives and meet your
reporting requirements. The benefit of representing your enterprise in the chart of accounts is the Oracle Fusion General
Ledger functionality which includes multidimensional reporting with its Essbase tool. Segments included in the chart of
accounts become dimensions in Essbase. The recorded data is automatically loaded into the Essbase cube when you post
your journal entries. The Essbase tool includes powerful functionality for analysis and reporting on your financial data.
Chart of Accounts: Explained

The chart of accounts is the underlying structure for organizing financial information and reporting. An entity records
transactions with a set of codes representing balances by type, expenses by function, and other divisional or organizational
codes that are important to its business.
A well-designed chart of accounts provides the following benefits:
• Effectively manages an organization's financial business.
• Supports the audit and control of financial transactions.
• Provides flexibility for management reporting and analysis.
• Anticipates growth and maintenance needs as organizational changes occur.
• Facilitates an efficient data processing flow.
• Allows for delegation of responsibility for cost control, profit attainment, and asset utilization.
• Measures performance against corporate objectives by your managers.
The chart of accounts facilitates aggregating data from different operations, from within an operation, and from different
business flows, thus enabling the organization to report using consistent definitions to their stakeholders in compliance with
legislative and corporate reporting standards and aiding in management decisions.
Best practices include starting the design from external and management reporting requirements and making decisions about
data storage in the general ledger, including thick versus thin general ledger concepts.
Thick Versus Thin General Ledger: Critical Choices

Thick versus thin general ledger is standard terminology used to describe the amount of data populated and analysis
performed in your general ledger. Thick and thin are the poles; most implementations are somewhere in between. Here are
some variations to consider:
• A general ledger used in conjunction with an enterprise profitability management (EPM) product, which has data
standardized from each operation, is designed as a thin general ledger. Use this variation if your solution is project-
based, and Oracle Fusion Project Portfolio Management is implemented. More detailed reporting can be obtained
from the Projects system. In the thin general ledger, business units, divisions, and individual departments are not
represented in the chart of accounts.
• A general ledger, with segments representing all aspects and capturing every detail of your business, with frequent
posting, many values in each segment, and many segments, is called a thick general ledger. A thick general
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ledger is designed to serve as a repository of management data for a certain level of management. For example,
a subsidiary's general ledger is designed to provide the upper management enough data to supervise operations,
such as daily sales, without invoice details or inventory without part number details.
• A primary ledger and a secondary ledger, where one is a thick general ledger and the other a thin general ledger,
provides dual representation for reporting requirements that require more than one ledger.
Thin General Ledger

With a thin general ledger, you use the general ledger for internal control, statutory reporting, and tracking of asset ownership.
You minimize the data stored in your general ledger. A thin general ledger has many of the following characteristics:
• Minimal chart of accounts

◦ Short list of cost centers
◦ Short list of natural accounts
• Short list of cost accounts
• Summary level asset and liability accounts
◦ Low number of optional segments
• Infrequent posting schedule
A thin general ledger has natural accounts at a statutory reporting level, for example, payroll expense, rent, property taxes,
and utilities. It has cost centers at the functional expense level, such as Research and Development (R&D) or Selling, General,
and Administrative (SG&A) expense lines, rather than at department or analytic levels. It omits business unit, division, and
product detail.
One example of an industry that frequently uses a thin general ledger is retail. In a retail organization, the general ledger tracks
overall sales numbers by region. A retail point of sales product tracks sales and inventory by store, product, supplier, markup,
and other retail sales measures.
Thick General Ledger

With a thick general ledger, you use the general ledger as a detailed, analytic tool, performing analytic functions directly in the
general ledger. Data is broken down by many reporting labels, and populated frequently from the subledgers.
You maximize the data stored in the general ledger. A thick general ledger has many of the following characteristics:
• Maximum use of the chart of accounts

◦ Long list of natural accounts
◦ Long list of cost centers
• Long list of costing accounts
• Detailed asset and liability accounts
• Frequent posting schedule
In a thick general ledger, you obtain detail for cost of goods sold and inventory balances and track property plant and
equipment at a granular level. Cost centers represent functional expenses, but also roll up to departmental or other expense
analysis levels. Using product and location codes in optional segments can provide reporting by line of business. Posting
daily, at the individual transaction level, can maximize the data stored in the general ledger.
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One example of an industry that frequently uses a thick general ledger is electronic manufacturers. Detail on the revenue line
is tagged by sales channel. Product is structured differently to provide detail on the cost of goods sold line, including your
bill of materials costs. The general ledger is used to compare and contrast both revenue and cost of goods sold for margin
analysis.
Other Considerations
Consider implementing a thick ledger if there are business requirements to do any of the following:
• Track entered currency balances at the level of an operational dimension or segment of your chart of accounts, such
as by department or cost center
• Generate financial allocations at the level of an operational dimension or segment
• Report using multiple layered and versioned hierarchies of the operational dimension or segment from your general
ledger
Consider implementing a thin ledger in addition to a thick ledger, if there are additional requirements for:
• Minimal disclosure to the authorities in addition to the requirements listed above. For example, in some European
countries, fiscal authorities examine ledgers at the detailed account level.
• Fiscal only adjustments, allocations, and revaluations, which don't impact the thick general ledger.
The important consideration in determining if a thick ledger is the primary or secondary ledger is your reporting needs. Other
considerations include how the values for an operational dimension or segment are derived and the amount of resources
used in reconciling your different ledgers. If values for the operational dimension are always entered by the user like other
segments of the accounting flexfield, then a thick primary ledger is the better choice.
However, if values for the operational dimension or segment are automatically derived from other attributes on the
transactions in your subledger accounting rules, rather than entered in the user interface, then use a thick secondary ledger.
This decision affects the amount of:
• Storage and maintenance needed for both the general ledger and subledger accounting entries
• System resources required to perform additional posting
• In summary, you have:
◦ Minimum demand on storage, maintenance, and system resources with the use of a thin ledger
◦ Greater demand on storage, maintenance, and system resources with the use of a thick ledger
◦ Greatest demand on storage, maintenance and system resources with the use of both thick and thin ledgers
Note
Generally speaking, there is a trade-off between the volume of journals and balances created and
maintained versus system resource demands. Actual performance depends on a wide range of factors
including hardware and network considerations, transaction volume, and data retention policies.
Summary
The factors you need to consider in your decision to use a thick or thin general ledger for your organization, are your:
• Downstream EPM system and its capabilities
• Business intelligence system and its capabilities
• Subledger systems and their capabilities and characteristics, including heterogeneity
• General ledger reporting systems and their capabilities
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• Maintenance required for the thick or thin distributions and record keeping
• Maintenance required to update value sets for the chart of accounts segments
• Preferences of the product that serves as a source of truth
• Level at which to report profitability including gross margin analysis
• Industry and business complexity
Chart of Accounts: How Its Components Fit Together

The important elements in a basic chart of accounts in Oracle Fusion Applications included a structure that defines the
account values, segments and their labels, and rules (security and validation). Account combinations link the values in the
segments together and provide the accounting mechanism to capture financial transactions.
Chart of Accounts
The chart of accounts defines the number and attributes of various segments, including:
• Order of segments
• Width of segments
• Prompts
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• Segment labels, such as balancing, natural account, and cost center.

The chart of accounts further defines:
• Combination of value sets associated with each segment
• Type of segment
• Default values for the segments
• Additional conditions designating the source of the values using database tables
• Required and displayed properties for the segments
Segments
A chart of accounts segment is a component of the account combination. Each segment has a value set attached to it to
provide formatting and validation of the set of values used with that segment. The combination of segments creates the
account combination used for recording and reporting financial transactions. Examples of segments that may be found in a
chart of accounts are company, cost center, department, division, region, account, product, program, and location.
Value Sets and Values

The value sets define the attributes and values associated with a segment of the chart of accounts. You can think of a value
set as a container for your values. You can set up your flexfield so that it automatically validates the segment values that
you enter against a table of valid values. If you enter an invalid segment value, a list of valid values appears automatically so
that you can select a valid value. You can assign a single value set to more than one segment, and you can share value sets
across different flexfields.
Caution
You must use Independent validation only for the Accounting Key Flexfield value sets. Other validations prevent
you from using the full chart of accounts functionality, such as data security, reporting, and account hierarchy
integration. Dependent values sets are not supported.
Segment Labels
Segment labels identify certain segments in your chart of accounts and assign special functionality to those segments.
Segment labels were referred to as flexfield qualifiers in Oracle E-Business Suite. Here are the segment labels that are
available to use with the chart of accounts.
• Balancing: Ensures that all journals balance for each balancing segment value or combination of multiple balancing
segment values to use in trial balance reporting. The three balancing segment labels are: primary, second, and third
balancing. The primary balancing segment label is required.
• Cost Center: Facilitates grouping of natural accounts by functional cost types, accommodating tracking of specific
business expenses across natural accounts. As cost centers combine expenses and headcount data into costs,
they are useful for detailed analysis and reporting. Cost centers are optional, but required if you are accounting for
depreciation, additions, and other transactions in Oracle Fusion Assets, and for storing expense approval limits in
Oracle Fusion Expense Management.
• Natural Account: Determines the account type (asset, liability, expense, revenue, or equity) and other information
specific to the segment value. The natural account segment label is required.
• Management: Optionally, denotes the segment that has management responsibility, such as the department, cost
center, or line of business. Also can be attached to the same segment as one of the balancing segments to make
legal entity reporting more granular.
• Intercompany: Optionally, assigns the segment to be used in intercompany balancing functionality.
Note
All segments have a segment qualifier that enables posting for each value. The predefined setting is Yes to post.
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Account Combinations
An account combination is a completed code of segment values that uniquely identifies an account in the chart of accounts,
for example 01-2900-500-123, might represent InFusion America (company)-Monitor Sales (division)-Revenue (account)-Air
Filters (product).
Rules
The chart of accounts uses two different types of rules to control functionality.
• Security rules: Prohibit certain users from accessing specific segment values. For example, you can create a
security rule that grants a user access only to his or her department.
• Cross-validation rules: Control the account combinations that can be created during data entry. For example, you
may decide that sales cost centers 600 to 699 should enter amounts only to product sales accounts 4000 to 4999.
Financial Enterprise Structure: How It Fits Together

Oracle Fusion Applications is an integrated suite of business applications that connects and automates the entire flow of the
business process across both front and back office operations and addresses the needs of a global enterprise. The process
of designing the enterprise structure, including the accounting configuration, is the starting point for an implementation. This
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process often includes determining financial, legal, and management reporting requirements and examining consolidation
considerations.
Accounting Configuration Components

The accounting configuration components are:
• Ledgers: The main record-keeping structure. A ledger records the transactional balances by defining a chart of
accounts with a consistent calendar and currency, and accounting rules, implemented in an accounting method.
The ledger is associated with the subledger transactions for the business units that are assigned to it, and provides
context and accounting for them.
• Balancing Segments: Use these chart of accounts element to represent and track both legal and management
entities. The primary balancing segment is used to represents your legal entities. The Second and Third balancing
segments are used to implement management reporting and analysis. Balancing segments provide automatic
balancing functionality by legal entity for journal entries, including intercompany and intracompany entries, suspense
posting, and rounding imbalances.
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• Cost Centers: The component that aggregates elements of natural expenses to identify functional costs. A cost
center can be the smallest segment of an organization for which costs are collected and reported. Not all cost
centers represent organizations. A manager is assigned responsibility for cost control and is assigned both a
department and a cost center; in which case the cost center and department might be identified with each other.
However, a finance department manager might have separate cost centers for finance cost and audit costs and a
Research and Development department manager might have separate cost centers for research and development.
Cost centers are represented by segment values in the chart of accounts that indicate the functional areas of your
business, such as accounting, facilities, shipping, or human resources. You might keep track of functional areas at
a detailed level, but produce summary reports that group cost centers into one or more departments. Cost center
values are also used by Oracle Fusion Assets to assist the managers in tracking locations and accounting for assets
assigned to their departments.
• Accounts: The code in the chart of accounts that uniquely identifies each type of transactions recorded in the ledger
and subledgers. The account segment is mapped to a dimension in the GL Balances Cube to enable reporting and
inquiry. This functionality uses Oracle Fusion Business Intelligence to analyze and drill into expense and revenue
transactions.
Representing Legal Entities, Business Units, Departments in

Chart of Accounts
The following list provides information on how to represent legal entities, business units, and departments in chart of
accounts.
• Representing Legal Entities in the Chart of Accounts: Legal entity is the term used in Oracle Fusion Applications for
registered companies and other organizations recognized in law as having a legal existence and as parties with given
rights and responsibilities.
Legal entities are created in the applications and then assigned balancing segment values, sometimes called
company codes in your ledgers during accounting configuration.
• Representing Business Units in the Chart of Accounts: A business unit (BU) is part of an enterprise managed
by a manager with profit and loss responsibility. The business unit is generally tracked in the chart of accounts.
A business unit can be represented by a single ledger. For example, in countries where you need document
sequencing for unique transaction sequencing within a legal entity, you can have a single ledger with a single
business unit and legal entity.
A business unit can also be identified in the chart of accounts as a:
◦ Management segment value
◦ Balancing segment value
◦ Roll up of cost center segments using hierarchies

For example, a business unit manager is responsible for working capital utilization or overall asset utilization.
You identify the business unit as a balancing segment value, to enable calculation of ratios for various utilization
measurements.
A business unit is assigned to a primary ledger, as well as a default legal entity when it is configured. A BU identifies
the primary ledger that subledger transactions are posted to, facilitating the use of more than one BU per general
ledger. Each business unit posts transactions to a single primary ledger. For example, a shared service center
handles all the procurement functions for the entire company. The procurement transactions are posted to the
business unit's ledger with intercompany entries to other ledgers as needed.
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• Representing Departments in the Chart of Accounts: A department is an organizational structure with one or more
operational objectives or responsibilities that exist independently of its manager and that has one or more employees
assigned to it. The manager of a department is typically responsible for business deliverables, personnel resource
management, competency management, and occasionally, for cost control and asset tracking.
In Oracle Fusion Applications, departments can be set up in Oracle Fusion Human Capital Management (HCM). If
desired, they can also be represented by a unique segment in the chart of accounts or a group of cost center values.
Modeling Your Financial Reporting Structure in

Oracle Fusion: Example
This example uses a fictitious global company to demonstrate the analysis that can occur during the financial reporting
structure planning process.
Scenario
Kingdom (UK). InFusion has purchased an Oracle Fusion enterprise resource planning (ERP) solution including Oracle Fusion
General Ledger and all of the Oracle Fusion subledgers. You are chairing a committee to discuss creation of a model for your
global financial reporting structure including your chart of accounts for both your US and UK operations.
InFusion Corporation
build and maintain air quality monitoring (AQM) systems for homes and businesses. You have two distribution centers and
three warehouses that share a common item master in the US and UK. Your financial services organization provides funding
to your customers for the start up costs of these systems.
Analysis
The following are elements you need to consider in creating your model for your financial reporting structure.
• Your company is required to report using US Generally Accepted Accounting Principles (GAAP) standards and UK
Statements of Standard Accounting Practice and Financial Reporting Standards. How many ledgers do you need to
achieve proper statutory reporting?
• Your financial services line of business has a different year end. Do you need a different calendar? Your financial
services entity must report with average balance sheets. This feature of Oracle Fusion General Ledger provides you
with the ability to track average and end-of-day balances, report average balance sheets, and create custom reports
using both standard and average balances.
• Your corporate management requires reports showing total organizational performance with drill down capability to
the supporting details. Do you need multiple balancing segment hierarchies to achieve proper rollup of balances for
reporting requirements?
• Legal entity balancing options: Do you need to produce financial statements by one or more than one legal entity?
Can you record multiple legal entities in one ledger or do you require multiple ledgers? Are you upgrading to Oracle
Fusion Applications or a new install? If an upgrade, is your current financial reporting structure meeting your reporting
needs?
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Global Financial Reporting Model

The following figure and table summarize the model that your committee has designed and uses numerical values to provide
a sample representation of your financial reporting structure. The model includes the following recommendations:
• Creation of three separate ledgers representing your separate legal entities:
◦ InFusion America Inc.
◦ InFusion Financial Services Inc.
◦ InFusion UK Services Ltd.
• Data security is controlled by balancing segment values using Oracle Fusion General Ledger data access sets
Recommendations for the chart of accounts design include:
• Segments required for cost centers with hierarchical rollups to departments providing reporting at both the detail
(cost center) and summary (department) level.
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• Accounts configured to provide drill down capability to the subledger transactions, enabling analysis of data.
Decision InFusion America, Inc. InFusion Financial InFusion UK Systems,

Services, Inc. Ltd.
Type of Ledgers Primary Primary Primary with the use

of Reporting Currency
functionality

Legal Entity Codes US Legal Entity 1: US US Legal Entity 3: US UK Legal Entity 4: UK

Corporate Financial Services Systems

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Decision InFusion America, Inc. InFusion Financial InFusion UK Systems,

Services, Inc. Ltd.
US Legal Entity 2: US
Systems

Balancing Segments 101: US Corporate 102: US Financial 103: UK Systems

Services
201: US Systems 301: Components
Components
302: UK Systems
202: US Systems Installations
Installations
303: UK Systems
203: US Systems Maintenance
Maintenance

Currencies for Reporting US Dollar (USD) US Dollar (USD) Great Britain Pounds
Sterling (GBP)

US Dollar (USD)

Calendar Ending date December 31st April 30th December 31st

Business Units (BU)* BU 1: US Systems BU 2: Financial Services BU 3: UK Systems

BU 4: Corporate (Shared
Service Center)

Balances Storage Standard Balances Average and Standard Standard Balances

Method Balances

Locations represented Headquarters US Headquarters UK Distribution Center

by cost centers in the Distribution Center (BU (BU 3)
chart of accounts. 1)
UK Warehouse
US Warehouse West

US Warehouse East

Note
In the chart of accounts, cost centers, with hierarchical rollups, represent business units. InFusion Corporation is
also a legal entity but is not discussed in this example.
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Understanding Enterprise Structures Cost Centers and Departments
7 Cost Centers and Departments

Cost Centers and Departments: Explained
The two important components to be considered in designing your enterprise structure are cost centers and departments.
A cost center represents the smallest segment of an organization for which you collect and report costs. A department is an
organization with one or more operational objectives or responsibilities that exist independently of its manager and has one or
more workers assigned to it.
Cost Centers
A cost center also represents the destination or function of an expense as opposed to the nature of the expense which
is represented by the natural account. For example, a sales cost center indicates that the expense goes to the sales
department.
A cost center is generally attached to a single legal entity. To identify the cost centers within a chart of accounts structure use
one of these two methods:
• Assign a cost center value in the value set for each cost center. For example, assign cost center values of PL04 and
G3J1 to your manufacturing teams in the US and India. These unique cost center values allow easy aggregation of
cost centers in hierarchies (trees) even if the cost centers are in different ledgers. However, this approach requires
defining more cost center values.
• Assign a balancing segment value with a standardized cost center value to create a combination of segment values
to represent the cost center. For example, assign the balancing segment values of 001 and 013 with cost center
PL04 to represent your manufacturing teams in the US and India. This creates 001-PL04 and 013-PL04 as the cost
center reporting values. The cost center value of PL04 has a consistent meaning. This method requires fewer cost
center values to be defined. However, it prevents construction of cost center hierarchies using trees where only
cost center values are used to report results for a single legal entity. You must specify a balancing segment value in
combination with the cost center values to report on a single legal entity.
Departments
A department is an organization with one or more operational objectives or responsibilities that exist independently of its
manager. For example, although the manager may change, the objectives do not change. Departments have one or more
workers assigned to them.
A manager of a department is typically responsible for:
• Controlling costs within their budget

• Tracking assets used by their department
• Managing employees, their assignments, and compensation
Note
The manager of a sales department may also be responsible for meeting the revenue targets.
The financial performance of departments is generally tracked through one or more cost centers. In Oracle Fusion
Applications, departments are defined and classified as Department organizations. Oracle Fusion Human Capital
Management (HCM) assigns workers to departments, and tracks the headcount at the departmental level.
The granularity of cost centers and their relationship to departments varies across implementations. Cost center and
department configuration may be unrelated, identical, or consist of many cost centers tracking the costs of one department.
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Department Classifications: Points to Consider

A department can be classified as a project organization, sales and marketing organization, or cost organization.
Oracle Fusion Human Capital Management (HCM) uses trees to model organization hierarchies. It provides seeded tree
structures for department and other organizational hierarchies that can include organizations with any classification.
Project Organization
Classify departments as a project owning organization to enable associating them with projects or tasks. The project
association is one of the key drivers for project access security.
In addition, you must classify departments as project expenditure organizations to enable associating them to project
expenditure items. Both project owning organizations and project expenditure organizations can be used by Oracle Fusion
Subledger Accounting to derive accounts for posting Oracle Fusion Projects accounting entries to Oracle Fusion General
Ledger.
Sales and Marketing Organization

In Oracle Sales Cloud, you can define sales and marketing organizations. Sales organization hierarchies are used to report
and forecast sales results. Sales people are defined as resources assigned to these organizations.
In some enterprises, the HCM departments and hierarchies correspond to sales organizations and hierarchies. It is important
to examine the decision on how to model sales hierarchies in relationship to department hierarchies when implementing
customer relationship management to eliminate any possible redundancy in the definition of the organizations.
The following figure illustrates a management hierarchy, in which the System Components Division tracks its expenses in
two cost centers, Air Compressors and Air Transmission. At the department level, two organizations with a classifications of
Department are defined, the Marketing Department and Sales Department. These two departments can be also identified as
a Resource Organizations, which will allow assigning resources, such as sales people, and other Oracle Sales Cloud specific
46
information to them. Each department is represented in the chart of accounts by more than one cost center, allowing for
granular as well as hierarchical reporting.
Cost Organization
Oracle Fusion Costing uses a cost organization to represent a single physical inventory facility or group of inventory storage
centers, for example, inventory organizations. This cost organization can roll up to a manager with responsibility for the cost
center in the financial reports.
A cost organization can represent a costing department. Consider this relationship when determining the setup of
departments in HCM. There are no system dependencies requiring these two entities, cost organization and costing
department, be set up in the same way.
What's a project and task owning organization?

Every project is owned by an organization that is used for reporting, security, and accounting. An organization can own
specific types of projects, such as indirect projects, capital projects, billable projects, and capital contract projects. On a
contract project, the project owning organization can also be used in the accounting rules to determine which general ledger
cost center receives credit for the revenue. Assign project and task owning organizations to project units to specify which
organizations are available to own the project.
What's a project expenditure organization?

A project expenditure organization is one that can incur expenditures and hold financial plans for projects. For an organization
to be eligible to be a project expenditure organization, you must assign the organization the Project Expenditure Organization
classification, and the organization must be assigned to the hierarchy that you specify in the project implementation options
for the business unit.
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48
Understanding Enterprise Structures Facilities
8 Facilities
Item Master Organization: Explained

An item master organization lists and describes items that are shared across several inventory organizations or item
organization.
The following example shows the choice between inventory organizations that track inventory transactions, stored in two
warehouses, and item organizations that just track items, listed in two sales catalogs.
For the most efficient processing, you should:
• Have a single item master
• Include an item and its definition of form, fit, and function only once in the item master
• Separate the item master organization from organizations that store and transact items
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Note
Oracle Fusion allows multiple item masters, however, use this capability cautiously. If you acquire a company,
there may be value in allowing the old item master to exist for a transition period. If you manage your subsidiaries
as separate businesses, there may be reduced value in a single item master.
Item Organization: Explained

An item organization defines an item when inventory balances are not stored and inventory storage or inventory movement
is not reflected in the Oracle Fusion Applications. For example, you would use an item organization in a retail scenario, if
you need to know the items that are listed by and sold through each retail outlet even though inventory and transactions are
recorded in another system. In Oracle Sales Cloud, item organizations are used to define sales catalogs.
Note
• Items belong to an item organization.
• Item attributes that are associated with financial and accounting information are hidden from the item if it exists
within the item organization.
• Item organizations can be changed by administrators to an inventory organization by updating the necessary
attributes. There is no difference in the way items are treated in these two types of organizations except that
there cannot be any financial transactions in the downstream applications for items that are assigned to an item
organization.
Inventory Organization: Critical Choices

In Oracle Fusion, storage facilities, warehouses, and distribution centers are implemented as inventory organizations.
Inventory organizations are:
• Managed by a business unit, with the materials management business function enabled.
• Mapped to a legal entity and a primary ledger.
There are two types of inventory organizations:
• Manufacturing facilities
• Storage facilities
Storage and manufacturing facilities are related to other organizational entities through a business unit that stores,
manufactures, and distributes goods through many factories, warehouses, and distribution centers. The material parameters
are set for both the facilities, enabling movement of material in the organization. This business unit has the business function
of Materials Management enabled. Oracle Fusion Applications allow many inventory organizations to be assigned to one
business unit.
Note
Currently, Oracle Fusion Applications do not include manufacturing capabilities, so setup your manufacturing
facilities outside of Oracle Fusion applications.
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Distribution Center as an Inventory Organization

A distribution center can store inventory that is the responsibility of different business units. In this situation, assign an
inventory organization to each business unit as a representation of the inventory in the distribution center. The multiple
inventory organizations representing the inventory are defined with the same location to show that they are a part of the same
distribution center.
In the following figure the two business units, Air Compressors and Air Transmission, share one distribution center in Atlanta.
The two inventory organizations, Air Compressors and Air Transmission represent the inventory for each business unit in the
Atlanta distribution center and are both assigned the Atlanta location.
Legal Entities Own Inventory Organizations

A legal entity owns the inventory located in a storage or manufacturing facility. This ownership is assigned through the
relationship of the inventory organization representing the inventory and the legal entity assigned to the inventory organization.
The legal entity assigned to the inventory organization shares the same primary ledger as the inventory organization's
business unit.
The inventory is tracked in the inventory organization owned by the legal entity of which the business unit is part. All
transactions are accounted for in the primary ledger of the legal entity that owns the inventory.
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The figure below illustrates the inventory owned by InFusion Air Quality legal entity. The InFusion Air Quality legal entity
is associated with the Air Compressors business unit, which is associated with the two Air Compressors inventory
organizations. Therefore, InFusion Air Quality legal entity owns the entire inventory in both the Dallas and Atlanta locations.
Facility Schedules Are Associated with Inventory Organizations

A prerequisite to defining an inventory organization is to define a facility schedule. Oracle Fusion Applications allow you to
associate an inventory organization with a schedule.
Facility schedules allow creating workday calendars for inventory organizations that are used in the Oracle Fusion Supply
Chain Management product family. For example, use workday calendars in the scheduling of cycle counts and calculating
transit time.
Cost Organization: Explained

Cost organizations are used to establish cost accounting policies, data defaults, and user security policies for Oracle Fusion
Costing. A cost organization can potentially be spread across several physical locations or inventory organizations.
For example, you created inventory organizations for your manufacturing facility, finished goods warehouse, and distribution
centers. Then, you used average costs for your items in the manufacturing facility and the finished goods warehouse, but
used standard costs for the same items after they have moved to the distribution centers. In this case, your enterprise has
three inventory organizations, but only two cost organizations.
Accounting and business needs determine the different cost organizations, inventory organizations, and cost book
combinations required, as well as the cost profiles needed to calculate transaction costs.
All inventory organizations grouped under a cost organization must belong to the same legal entity. For every cost
organization, you must designate one of its inventory organizations as the item validation organization, which means that all
items in the cost organization use the item validation organization's units of measure for cost calculations. Define one or more
cost organizations to meet your operational structure and reporting needs.
Note
A cost organization generally represents a costing department. Take costing departments into consideration when
determining the setup of departments in Oracle Fusion Human Capital Management (HCM). There are no system
dependencies on cost organizations and costing departments requiring the same setup.
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Understanding Enterprise Structures Reference Data
9 Reference Data
Reference Data Sets and Sharing Methods: Explained

Oracle Fusion Applications reference data sharing feature is also known as SetID. The reference data sharing functionality
supports operations in multiple ledgers, business units, and warehouses, thereby reducing the administrative burden and
decreasing the time needed to implement new business units. For example, you can share sales methods, transaction types,
or payment terms across business units or selected other data across asset books, cost organizations, or project units.
The reference data sharing features use reference data sets to which reference data is assigned. The reference data sets
group assigned reference data. The sets can be understood as buckets of reference data assigned to multiple business units
or other application components.
Reference Data Sets

You begin this part of your implementation by creating and assigning reference data to sets. Make changes carefully as
changes to a particular set affect all business units or application components using that set. You can assign a separate
set to each business unit for the type of object that is being shared. For example, assign separate sets for payment terms,
transaction types, and sales methods to your business units.
Your enterprise can decide that some aspects of corporate policy should affect all business units and leave other aspects to
the discretion of the business unit manager. This allows your enterprise to balance autonomy and control for each business
unit. For example, if your enterprise holds business unit managers accountable for their profit and loss, but manages working
capital requirements at a corporate level, you can let managers define their own sales methods, but define payment terms
centrally. In this case, each business unit would have its own reference data set for sales methods, and there would be one
central reference data set for payment terms assigned to all business units.
The reference data sharing is especially valuable for lowering the cost of setting up new business units. For example,
your enterprise operates in the hospitality industry. You are adding a new business unit to track your new spa services.
The hospitality divisional reference data set can be assigned to the new business unit to quickly setup data for this entity
component. You can establish other business unit reference data in a business unit specific reference data set as needed.
Reference Data Sharing Methods

There are variations in the methods used to share data in reference data sets across different types of objects. The following
list identifies the methods:
• Assignment to one set only, no common values allowed. The simplest form of sharing reference data that allows
assigning a reference data object instance to one and only one set. For example, Asset Prorate Conventions are
defined and assigned to only one reference data set. This set can be shared across multiple asset books, but all the
values are contained only in this one set.
• Assignment to one set only, with common values. The most commonly used method of sharing reference data
that allows defining reference data object instance across all sets. For example, Receivables Transaction Types are
assigned to a common set that is available to all the business units without the need to be explicitly assigned the
transaction types to each business unit. In addition, you can assign a business unit specific set of transaction types.
At transaction entry, the list of values for transaction types includes transaction types from the set assigned to the
business unit, as well as transaction types assigned to the common set that is shared across all business units.
• Assignment to multiple sets, no common values allowed. The method of sharing reference data that allows a
reference data object instance to be assigned to multiple sets. For instance, Payables Payment Terms use this
method. It means that each payment term can be assigned to one or more than one set. For example, you assign
the payment term Net 30 to several sets, but the payment term Net 15 is assigned to only your corporate business
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unit specific set. At transaction entry, the list of values for payment terms consists of only one set of data; the set
that is assigned to the transaction's business unit.
Note
Oracle Fusion Applications contains a reference data set called Enterprise. Define any reference data that affects
your entire enterprise in this set.
What reference data objects can be shared across

business units?
The following list contains the reference data objects for the Oracle Fusion Applications that can be shared across business
units and the method in which the reference data for each is shared.
Application Name Reference Data Object Method of Sharing
Trading Community Model Customer Account Relationship Assignment to one set only, with
common values

Trading Community Model Customer Account Site Assignment to one set only, with
common values

Trading Community Model Sales Person Assignment to one set only, with
common values

Opportunity Management Sales Method Group Assignment to one set only, with
common values

Work Management Assessment Templates Assignment to one set only, with

common values

Enterprise Contracts Contract Types Assignment to one set only, with

common values

Sales Sales Method Assignment to one set only, with

common values

Common Components Activity Templates Assignment to one set only, with

common values

Payables Payment Terms Assignment to multiple sets, no

common values allowed

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Receivables Accounting Rules Assignment to one set only, with

common values

Receivables Aging Buckets Assignment to one set only, with

common values

Receivables Auto Cash Rules Assignment to one set only, with

common values

Receivables Collectors Assignment to one set only, with

common values

Receivables Lockbox Assignment to one set only, with

common values

Receivables Memo Lines Assignment to one set only, with

common values

Receivables Payment Terms Assignment to one set only, with

common values

Receivables Remit To Address Assignment to one set only, with

common values

Receivables Revenue Contingencies Assignment to one set only, with

common values

Receivables Transaction Source Assignment to one set only, with

common values

Receivables Transaction Type Assignment to one set only, with

common values

Advanced Collections Collections Setups Assignment to one set only, with

common values

Advanced Collections Dunning Plans Assignment to one set only, with

common values

55
Tax Tax Classification Codes Assignment to multiple sets, no


Human Resources Departments Assignment to one set only, with

common values

Human Resources Jobs Assignment to one set only, with

common values

Human Resources Locations Assignment to one set only, with

common values

Human Resources Grades Assignment to one set only, with

common values

Project Billing Project and Contract Billing Assignment to multiple sets, no


Project Foundation Project Accounting Definition Assignment to one set only, no


Project Foundation Project Rates Assignment to one set only, with

common values

Fusion Order Management Hold Codes Assignment to one set only, with
common values

Fusion Order Management Orchestration Process Assignment to one set only, with
common values


asset books?
The following list contains the reference data objects for Oracle Fusion Assets that can be shared across asset books and the
method in which the reference data for each is shared.
56
Assets Bonus Rules Assignment to one set only, no


Assets Depreciation Ceilings Assignment to one set only, no


Assets Depreciation Methods Assignment to one set only, with

common values

Assets Asset Descriptions Assignment to one set only, no


Assets Property Types Assignment to one set only, with

common values

Assets Prorate Conventions Assignment to one set only, no


Assets Asset Queue Names Assignment to one set only, with

common values

Assets Retirement Types Assignment to one set only, with

common values

Assets Unplanned Types Assignment to one set only, with

common values


cost organizations?
The following list contains the reference data objects for Oracle Fusion Cost Management that can be shared across cost
organizations and the method in which the reference data for each is shared.
Cost Management Cost Structure Assignment to one set only, no


57

project units?
The following table contains the reference data objects for Oracle Fusion Project Foundation that can be shared across
project units and the method in which the reference data for each is shared.
Project Foundation Project Definition Assignment to multiple sets, no


Project Foundation Project Transaction Types Assignment to multiple sets, no


Items and Supplier Site Reference Data Sharing:

Explained
Some products required special logic for reference data sharing and have implemented their own domain specific ways for
sharing data.
Items and supplier sites are two such product specific reference data objects that use product specific mechanisms to share
data.
Items
If you share your items across warehouses or manufacturing facilities, you can access them through a common item
master. Configure one or multiple item masters for your enterprise, based your enterprise structure. A single item master
is recommended because it provides simpler and more efficient maintenance. However, in rare cases, it may be beneficial
to keep multiple item masters. For example, if you acquire another enterprise and need to continue to operate your lines of
business separately, maintaining a second item master might be the best decision.
Suppliers Sites
You can approve particular suppliers to supply specified commodities and authorize your business units to buy from those
suppliers when the need arises. For example, you might be a household cleaning products manufacturer and need dyes,
plastics, and perfumes to make your products. You purchase from a central supplier 70% of your perfume supplies with an
additional supplier, in reserve, from whom you purchase the remaining 30%. At the same time, each of your business units
purchases plastics and dyes from the same supplier, but from different local supplier sites to save transportation costs.
To implement business unit specific supplier sites, Oracle Fusion Procurement supports a method for defining suppliers sites
as owned and managed by the business unit responsible for negotiating the supplier terms. Your other business units that
have a service provider relationship defined with your procurement business unit subscribe to the supplier sites using the
58
supplier site assignments feature. In addition, Procurement allows sharing of the following procurement data objects across
business units:
• Supplier qualification data, such as approved supplier lists
• Catalog content, such as agreements, smart forms, public shopping lists, and content zones
• Procurement configuration data
59
60
Understanding Enterprise Structures Shared Service Centers
10 Shared Service Centers
Shared Service Center: Points to Consider

Oracle Fusion applications supports shared service centers in two ways. First, with business unit security, which allows your
shared service centers personnel to process transactions for other business units called clients. This was the foundation of
Multi Org Access Control in the Oracle E-Business Suite.
Second, the service provider model expands on this capability to allow a business unit and its personnel in a shared service
center to work on transactions of the client business units. It is possible to view the clients of a service provider business unit,
and to view service providers of a client business unit.
Your shared service centers provide services to your client business units that can be part of other legal entities. In such
cases, your cross charges and recoveries are in the form of receivables invoices, and not merely allocations within your
general ledger, thereby providing internal controls and preventing inappropriate processing.
For example, in traditional local operations, an invoice of one business unit cannot be paid by a payment from another
business unit. In contrast, in your shared service center environment, processes allowing one business unit to perform
services for others, such as paying an invoice, are allowed and completed with the appropriate intercompany accounting.
Shared service centers provide your users with access to the data of different business units and can comply with different
local requirements.
Security
The setup of business units provides you with a powerful security construct by creating relationships between the functions
your users can perform and the data they can process. This security model is appropriate in a business environment where
local business units are solely responsible for managing all aspects of the finance and administration functions.
In Oracle Fusion applications, the business functions your business unit performs are evident in the user interface for setting
up business units. To accommodate shared services, use business unit security to expand the relationship between functions
and data. A user can have access to many business units. This is the core of your shared service architecture.
For example, you take orders in many businesses. Your orders are segregated by business unit. However, all of these orders
are managed from a shared service order desk in an outsourcing environment by your users who have access to multiple
business units.
Benefits
In summary, large, medium, and small enterprises benefit from implementing share service centers. Examples of functional
areas where shared service centers are generally implemented include procurement, disbursement, collections, order
management, and human resources. The advantages of deploying these shared service centers are the following:
• Reduce and consolidate the number of control points and variations in processes, mitigating the risk of error.
• Increase corporate compliance to local and international requirements, providing more efficient reporting.
• Implement standard business practices, ensuring consistency across the entire enterprise and conformity to
corporate objectives.
• Establish global processes and accessibility to data, improving managerial reporting and analysis.
• Provide quick and efficient incorporation of new business units, decreasing startup costs.
• Establish the right balance of centralized and decentralized functions, improving decision making.
61
Understanding Enterprise Structures Shared Service Centers
• Automate self-service processes, reducing administrative costs.
• Permit business units to concentrate on their core competencies, improving overall corporate profits.
Service Provider Model: Explained

In Oracle Fusion applications, the service provider model defines relationships between business units for a specific business
function, identifying one business in the relationship as a service provider of the business function, and the other business unit
as its client.
Procurement Example
The Oracle Fusion Procurement product family has taken advantage of the service provide model by defining outsourcing of
the procurement business function. Define your business units with requisitioning and payables invoicing business functions
as clients of your business unit with the procurement business function. Your business unit responsible for the procurement
business function takes care of supplier negotiations, supplier site maintenance, and purchase order processing on behalf of
your client business units. Subscribe your client business units to the supplier sites maintained by the service providers, using
a new procurement feature for supplier site assignment.
In the InFusion example below, business unit four (BU4) serves as a service provider to the other three business units (BU1,
BU2, and BU3.) BU4 provides the corporate administration, procurement, and human resources (HR) business functions,
thus providing cost savings and other benefits to the entire InFusion enterprise.
62
Oracle Applications Cloud Glossary
Glossary
assignment
A set of information, including job, position, pay, compensation, managers, working hours, and work location, that defines a
worker's or nonworker's role in a legal employer.
balancing segment
A chart of accounts segment used to automatically balance all journal entries for each value of this segment.
business function
A business process or an activity that can be performed by people working within a business unit. Describes how a business
unit is used.
business unit
A unit of an enterprise that performs one or many business functions that can be rolled up in a management hierarchy.
chart of accounts
The account structure your organization uses to record transactions and maintain account balances.
cost book combination

Decides which cost book a cost organization uses for different financial reporting purposes.
cost center
A unit of activity or a group of employees used to assign costs for accounting purposes.
cost organization
A grouping of inventory organizations that indicates legal and financial ownership of inventory, and which establishes common
costing and accounting policies.
cost profile
Defines the cost accounting policies for items, such as the cost method and valuation structure.
department
A division of a business enterprise dealing with a particular area of activity.
determinant
A value that specifies the use of a reference data set in a particular business context.
division
A business-oriented subdivision within an enterprise. Each division is organized to deliver products and services or address
different markets.
63
document sequence
A unique number that is automatically or manually assigned to a created and saved document.
employment terms
A set of information about a nonworker's or employee's job, position, pay, compensation, working hours, and work location
that all assignments associated with the employment terms inherit.
flexfield
A grouping of extensible data fields called segments, where each segment is used for capturing additional information.
inventory organization
An organization that tracks inventory transactions and balances, and can manufacture or distribute products.
item organization
Item definition where inventory balances are not stored and movement of inventory is not tracked in the applications. Item
attributes that carry financial and accounting information are hidden.
item validation organization

An inventory organization whose primary or secondary unit of measure is used as the costing unit of measure for the item in
the cost organization to which that inventory organization belongs. The item master organization can also be designated as
the item validation organization.
legal authority
A government or legal body that is charged with powers such as the power to make laws, levy and collect fees and taxes,
and remit financial appropriations for a given jurisdiction.
legal employer
A legal entity that employs people.
legal entity
An entity identified and given rights and responsibilities under commercial law through the registration with country's
appropriate authority.
legal reporting unit

The lowest level component of a legal structure that requires registrations. Used to group workers for the purpose of tax and
social insurance reporting or represent a part of your enterprise with a specific statutory or tax reporting obligation.
legislative data group

A means of partitioning payroll and related data. At least one legislative data group is required for each country where the
enterprise operates. Each legislative data group is associated with one or more payroll statutory units.
line of business
Set of one or more highly related products which service a particular customer transaction or business need. Refers to an
internal corporate business unit.
64
manufacturing facilities
Employed in the making of goods for sale such as a factory or plant.
natural account
Categorizes account segment values by account type, asset, liability, expense, revenue, or equity, and sets posting,
budgeting, and other options.
organization
A unit of an enterprise that provides the framework for performing legal, management, and financial control and reporting.
Organizations can represent departments, sections, divisions, business units, companies, contractors, and other internal
or external units of the enterprise. Organization can be classified as project and task owning organizations, and project
expenditure organizations in Project Financial Management applications.
payroll statutory unit

A legal entity registered to report payroll tax and social insurance. A legal employer can also be a payroll statutory unit, but a
payroll statutory unit can represent multiple legal employers.
primary ledger
Main record-keeping ledger.
project and task owning organization

An organization that can own projects and tasks for the purpose of reporting, security, and accounting.
project expenditure organization

An organization that can incur expenditures and hold financial plans for projects.
project type
Controls basic project configuration options, such as burdening, billing, and capitalization options, and class categories that
are inherited by each project associated with the project type.
project unit
An operational subset of an enterprise, such as a line of business, that conducts business operations using projects, and
needs to enforce consistent project planning, management, analysis, and reporting.
reference data object

Business objects such as project types, rates schedules, and financial plan types that can be shared across organizations.
Define reference data sets if you want to group the values you define for these objects and share them with certain or all
organizations.
reference data set

Contains reference data that can be shared across a number of business units or other determinant types. A set supports
common administration of that reference data.
65
registration
The record of a party's identity related details with the appropriate government or legal authorities for the purpose of claiming
and ensuring legal and or commercial rights and responsibilities.
service provider model

A business unit that provides specific business functions for another business unit.
set
Classified and grouped reference data that organizational entities share.
storage facilities
Commercial building for storage of goods such as a warehouse.
strategic business unit

A division or product line within a larger enterprise that has its own distinct mission, competitors, and operates somewhat
independently from the rest of the company. Strategic business units (SBUs) allow the owning company to defined external
markets, conduct strategic planning in relation to products and markets, and respond quickly to changing economic or
market situation.
tree
Information or data organized into a hierarchy with one or more root nodes connected to branches of nodes. A tree must
have a structure where each node corresponds to data from one or more data sources.
value set
A set of valid values against which values entered by an end user are validated. The set may be tree structured (hierarchical).
work relationship
An association between a person and a legal employer, where the worker type determines whether the relationship is a
nonworker, contingent worker, or employee work relationship.
66

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Oracle

This guide also applies to on-premise

Part Number E61361-02

Copyright © 2011-2015, Oracle and/or its affiliates. All rights reserved.

3 Jurisdictions and Legal Authorities 13

5 Management Reporting Structures 23

6 Financial Reporting Structures 33

7 Cost Centers and Departments 45

10 Shared Service Centers 61

Oracle Applications Help

You can also access Oracle Applications Help at https://fusionhelp.oracle.com/.

Oracle Applications Guides

• Oracle Help Center at http://docs.oracle.com/

Other Information Sources

• http://www.oracle.com/pls/topic/lookup?ctx=acc&id=trs (if you are hearing impaired).

Oracle Enterprise Repository for Oracle Fusion Applications

Comments and Suggestions

• Send e-mail to: oracle_fusion_applications_help_ww_grp@oracle.com.

Enterprise Structures: Overview

• A distinct legal entity from its owners and managers.

• A separate card represents a series of registered companies.

Enterprise Structures Business Process Model:

BPM Activities Description

Define Enterprise Structures Define enterprise structures to represent an organization

BPM Activities Description

Define Business Units Define business units of an enterprise to perform one

Define Financial Reporting Structures Define financial reporting structures, including

Define Accounting Configurations Define the accounting configuration that serves as a

Define Facilities Define your manufacturing and storage facilities as

Using Single or Multiple Classifications for an

Defining an Organization with One Classification

Defining an Organization with Multiple Classifications

Configuration Workbench: Explained

Global Enterprise Configuration: Points to Consider

Business Unit Management

Modeling Your Enterprise Structure in Oracle Fusion:

The following figure illustrates the InFusion enterprise structure.

• Three companies enter into transaction for the AQM division.

• One company enters transactions for Financial Services exclusively.

• The company that is in another jurisdiction uses a different ledger.

• All the companies share the chart of accounts.

3 Jurisdictions and Legal Authorities

Jurisdictions and Legal Authorities: Explained

• Income Tax Jurisdiction

• Transaction Tax Jurisdiction

Income Tax Jurisdiction

Transaction Tax Jurisdiction

Legal Authorities: Explained

Legislative Data Groups: Explained

• Marks a legislation in which payroll is processed.

Legal Entities: Explained

• Facilitating local compliance

• Minimizing the enterprise's tax liability

• Preparing for acquisitions or disposals of parts of the enterprise

The Role of Your Legal Entities

• Own the assets of the enterprise

• Record sales and pay taxes on those sales

• Make purchases and incur expenses

• Perform other transactions

Legal Entity in Oracle Fusion: Points to Consider

• The importance of legal entity in transactions

• Legal entity and its relationship to business units

• Legal entity and its relationship to divisions